13 AMCs have debt exposure worth over Rs 2900 crore to IL&FS entities

With ratings agencies downgrading debt securities of IL&FS group firms, the natural question posed by debt MF investors is how are AMCs placed with respect to these companies. MFs buy debt of corporates, and when such debt sees trouble, there are definite implications for MF investors. The liquidity profile of the IL&FS Group is at present stretched given the sizeable repayment obligations at group level in the near term. Infrastructure Leasing & Financial Services, the unlisted parent, has already lost its investment grade rating.

Do note that all the data is as on August 31 and AMCs could have rejigged the portfolios to lower exposure in the past 10 days.

DSP Mutual Fund has the second highest exposure to IL&FS in terms of absolute assets. As many as 7 debt schemes had Rs 628.78 crore worth of debt exposure to IL&FS entities. The exposure is in form of structured obligation and debenture. These securities, belonging to IL&FS Transportation Networks and IL&FS Energy Development Co, are slated to mature March 2019 onwards.

Scheme-wise In terms of individual schemes, there are many debt funds that have high exposure to IL&FS entities. Do remember that a downgrade or default of a debt instrument impacts the MF investors.

Over the years, we have seen a few such instances. In August 2015, debt schemes of JP Morgan were badly hit when Amtek Auto defaulted on repayment. In February 2016, debt funds, holding bonds issued by the Jindal Steel & Power Ltd (JSPL), crashed after Crisil downgraded the company's credit rating. In February 2017, the debt funds and liquid scheme of Taurus Mutual Fund fell after the downgrading of the troubled Ballarpur Industries Ltd (Bilt) by India Ratings and Research.

When a debt security is downgraded, the NAV is hit (yields go up and so prices fall). if there is a default, fund houses have to follow SEBI procedures in terms of the accounting practice for provisioning non-performing assets (NPAs).

Quite a few schemes have 5-10% exposure to one or more IL&FS entities. Thankfully, a majority of schemes have exposure ranging from 1% to less than 5%.

Here is scheme-level data for those debt MFs that have the highest asset exposure in terms of percentage